\section{Insurance Risk Transferring Health Care Finance Mechanisms} 
\label{sec:RiskTransferringHealthCareFinanceMechanisms}

Every few years health care finance experts develop new and supposedly different mechanisms that share the common feature of transferring insurance risks to health care providers. Each time, the advocates champion their new mechanisms telling us that these mechanisms are better than the old ones they championed a few years ago, do not transfer insurance risks to providers, and will solve all the problems that plague our health care (finance) systems. Eventually the flaws are recognized by health care providers, financial analysts, and health services researchers. Despite forty years of negative capitation experiences, many authors \citep{Arrow2009, Gapenski2011} ignore capitation's abundant flaws and suggest that capitation can reduce costs without sacrificing quality or quantity. This paper shows that these assertions are not true. 

Insurance risk transferring health care finance mechanisms, include: Global and partial capitation, provider carve outs, provider risk/profit sharing, episode/bundled payments, Diagnosis Related Groups payment systems, and the Medicare/Medicaid prospective payment systems for physicians, hospitals, nursing homes, and home health agencies. These approaches transfer insurance risks to different degrees, but the critical issue is the difference in size between entities transferring, and assuming, insurance risks. 

Insurance risk transfers from individuals, and small insurers, to large insurers are efficient and effective when: Claims are relatively infrequent; Most policyholders have no, or modest, claims; and few large claims exist \citep{Borch, HoggLossDist1984, Bowers:2e:1997}. Transfers of similar risks from large insurers to individuals, or small insurers, \emph{almost always} result in less efficient risk management.

While capitation contracting parties are usually corporations, all clinically efficient health providers, including: Hospitals, Nursing Homes, Home Health Agencies, Physicians, Nurses, and Emergency and Operating Room personnel are affected, as facilities try to avoid adverse financial outcomes, such as: Missed profit goals, Operating losses, or Insolvency. I will show that when capitation is implemented in \emph{clinically efficient} settings, individual staff members must cut medically necessary and appropriate patient care or their facilities will miss reasonable financial goals of earning profits, and avoiding operating losses and insolvency. The assertion that capitation creates more efficient health care (finance) systems is a myth.

The analyses below show that small insurers' (risk assuming health care providers') operating results (clinical and financial efficiency) are systematically less favorable than those of large insurers. Capitation degrades, rather than improves, provider clinical and financial efficiency. Capitation advocates have repeatedly assumed, but have never shown, that capitation can work in efficient health care (finance) systems, a critical logical, mathematical, and statistical oversight. When appropriately conceptualized and analyzed, capitation induced, insurance risk disaggregation, reduces post-transfer risk management efficiency and compels insurance risk assuming health care providers to become less efficient, clinically and financially.

By comparing how insurer portfolio size affects: Loss Ratio variability, Profitability, Operating losses, Insolvency risk, Surplus requirements, and policyholder benefits. I will show that insurance risk transferring, health care finance mechanisms increase health care costs, decrease health system capacity, and decrease health care (finance) system efficiency. Inefficient provider insurance operations lead to volatile financial outcomes, inefficient and negligent care, increased costs, and delay and denial of medically necessary and appropriate care.
